China's Baowu ousters long-reigning steel king ArcelorMittal

Although China is the leading steel producer in the world, no Chinese steel producer has yet come out on top or ahead of ArcelorMittal.

China Baowu Steel Group surpassed ArcelorMittal in crude steel production in 2019, according to public figures, ending its dominance in the European heavyweight division since 2001. In September last year, Baowu took over the Chinese holding company Magang (Group), which was then the country's ninth most ranked steel supplier.

The result underscores China's dominant position in the global steel industry. At the same time, the country has yet to limit excess capacity in some meaningful way, paving the way for a drop in steel prices.


Baowu, parent of Baoshan Iron & Steel, has made it clear that he intends to shake up the industrial landscape. “We strive to become the global steel market leader” in technology and profitability, said Chairman Chen Derong after the company became the world's largest steel producer.

At the moment, Baowu mainly sells steel in the domestic market. But the company indicated that it will actively compete with international competitors. Back in February last year, Chen told employees that overseas operations would be essential to secure the company's future.

Baowu was born in 2016 through the merger of Baosteel Group and Wuhan Iron & Steel Group, then the fifth and 11th largest steel producers in China, respectively. The consolidation came when China met international criticism for producing too much steel.

The alleged purpose of Baowu's creation was to reduce production capacity. But government pressure forced the company to continue to scale up.

China has cut the number of major steel producers from 130 in 2010 to around 100 today. The government claims it has cut excess capacity by 150 million tonnes by 2018, which is about 10% of the total.

At the same time, the combined enterprises are installing high-capacity blast furnaces under the guise of upgrading equipment.

Japanese steelmakers, in particular, are wondering if China's ultimate goal is to build a large steel supplier that can outperform international competitors. Baowu is Appendix A of these problems.

“If scale is increased as a result of the reorganization, the competitive advantage that the Chinese are gaining overseas will be further enhanced,” said Nippon Steel President Eiji Hashimoto.

The cost of raw materials such as iron ore is 70% of the price of steel. Harvesting raw materials at scale and then mass-producing the final product in giant steel mills provides valuable competitive